One should never underestimate the importance of a good night’s sleep. To that end, we review some top market concerns that could challenge investors in the year ahead and provide insights to help keep restlessness at bay.

Could there be a US or global recession this year?
The second half of 2018 saw a shift from synchronized global growth to an unsynchronized slowdown across regions. Nonetheless, we do not expect a US or global recession to materialize in 2019 and believe that growth will remain solid, if clearly below 2018 levels.

Are more Fed rate hikes forthcoming? Given the expected slowdown in growth, fears about the trade war with China and still manageable inflation, markets are currently expecting no hikes for the whole of 2019. We believe that US growth will prove solid, and while we expect the Fed to pause, we still see one, possibly two, hikes this year. On the other hand, we do not think the ECB will hike at all in an environment of global slowdown.

Can China manage its latest economic slowdown? Chinese growth is in a multi-year structural slowdown, which should not be surprising from an economy of its size. The latest deceleration is due to the impact from US tariffs, but we believe that China will continue to ‘manage’ the slowdown, therefore avoiding a hard landing and any systemic risks.

How might political turmoil affect markets? Politics and geopolitics continue to dominate headlines, a trend which is unlikely to end for now. However, growth fears and a Fed mistake remains big risks for 2019 as well. We believe that some political tensions should ease, such as trade, although we do not expect them to vanish entirely.

Is an escalation in the US-China trade war likely? While there is still some risk that the trade war escalates before easing, we believe that the political cost for Trump ahead of his re-election campaign is rapidly rising, especially if markets continue to worry about the impact on growth, which will lead to some kind of deal between the two superpowers.

Will Brexit actually happen? Following the failure of Prime Minister Theresa May’s Brexit plan in Parliament, uncertainty remains extremely elevated. Ultimately, we believe that some form of Brexit will happen, though more twists and delays are likely.

Should investors expect a US yield curve1 inversion? We expect 10-year US Treasury yields to remain capped by growth fears, although there is some room on the upside if political tensions abate and growth fears ease. If the Fed only hikes once and recession fears ease, we might not see an inversion, at least in short term, but it remains a possibility.

What’s the likelihood that markets will post positive performances? After a difficult year, we expect equity markets to have positive if sub-par performances, as we believe that recession fears are overdone. If growth holds up and earnings growth stays positive, markets should have a constructive backdrop, albeit amid higher volatility. US markets should continue to benefit from better growth and earnings, while European markets are already pricing in so much bad news that downside should be more limited. Emerging Markets have held up well recently, which should continue if growth holds up and trade worries recede. Credit spreads2 should remain broadly range-bound, offering decent ‘yieldish’ performance.

How strong is the US dollar? In an environment where growth eases and the Fed is more dovish, the dollar could soften somewhat, although growth and interest rate differentials should maintain some underlying support for the reserve currency.

Will oil prices remain under pressure? Oil has recovered from last year’s lows, but we continue to believe that supply remains ample, acting as a cap on prices. We therefore expect prices to remain within a broad range.
1 The yield curve shows the relationship among bond yields across the maturity spectrum.

2 Risk spread is the additional net yield an investor can earn from a security with more credit risk relative to one with less credit risk.

This material is provided for informational purposes only and should not be construed as investment advice. The views and opinions expressed may change based on market and other conditions.

All investing involves risk, including the risk of loss. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.

Natixis Distribution, L.P. is a limited purpose broker-dealer and the distributor of various registered investment companies for which advisory services are provided by affiliates of Natixis Investment Managers.